THEORIES OF THE NEW CAPITALISM

BY PAUL M. SWEEZY

Few would quarrel with the proposition that capitalism is a

highly dynamic, rapidly changing social order. Marx and Engels put
the point at its strongest when they wrote in the Communist Mani-
festo:
The bourgeoisie cannot exist without constantly revolution-
izing the instruments of production, and thereby the relations of
production, and with them the whole relations of society.... Con-
stant revolutionizing of production, uninterrupted disturbance of
all social conditions, everlasting uncertainty and agitation distin-
guish the bourgeois epoch from all earlier ones. All fixed, fast
frozen relations ... are swept away, all new-formed ones become
antiquated before they can ossify.
It would be easy to argue on these grounds that capitalism is
always and inevitably a "new capitalism" in relation to what went
before, and indeed there is a sense in which this is unquestionably true
and important. But clearly it is not what is meant by all those people,
representing many shades of opinion, who apply the name "new capi-
talism" (or some label with a similar connotation) to the present
socio-economic system of the United States. They mean not just that
the system continues, as in the past, to evolve in various unspecified
ways but rather that in recent years it has undergone a number of
specific changes which have decisively altered its mode of functioning.
If we try to pin down just what these specific changes are, how-
ever, we find less agreement and even not a little confusion. Mr. Haig
Babian, Editor of Challenge magazine, published by New York Uni-
versity's Institute of Economic Affairs, has the following to say in an
editorial introducing a special issue (October 1958) devoted entirely
to the New Capitalism:
It would be fitting to present in this editorial some clear and
concise definition of what we mean by the term New Capitalism,
but I must admit that such a clear and concise definition escapes
me. Nevertheless, I feel no less incapable in this respect than the
vast majority of my fellow citizens. It is much easier to say what
the New Capitalism is not. It is not the classical capitalism so well
studied in the past and so imperfectly practiced today. What it is
remains to be seen.

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The reader who expects clarification from the twelve essays that
follow Mr. Babian's introduction is likely to be disappointed, however.
Most of them are by eminent economists and political scientists, and
a number are of considerably more than passing interest. But they
yield no agreement on the nature of the New Capitalism, and some of
the authors even shy rather conspicuously away from using the term.
Is all this to be taken as evidence that the New Capitalism is an
illusion? Not necessarily. The mere absence of a "clear and concise
definition" of something doesn't prove that it doesn't exist, and in this
case the remarkably widespread belief in the reality of some sort of
new capitalism is at least prima facie evidence that it does exist. But
the question remains: what is it?
One way to approach this question is via a critical analysis of the
actual content of some of the better-known recent literature dealing
with capitalism. I have tried to keep track of this literature with rea-
sonable care, and what follows is an attempt to pick out the themes
which stand out by reason of frequent repetition or particular emphasis
or both. Since any systematic survey of sources-s-not to mention quo-
tation of texts-is out of the question in a brief article, I have cited
works and authors rather to enliven the exposition than to prove points.
A short list of what seem to me to be the more important and repre-
sentative works (including all those cited) will be found at the end
of the article. Rather than burden the text with titles, I refer to those
works by numbers enclosed in square brackets.

Breakdown of the Classical Model

All the writers on the new capitalism agree on one thing: the
classical model of a freely competitive and self-adjusting economy no
longer reflects the essentials of capitalist reality. In this model, all
prices (including wages, rents, and rates of interest) were determined
by the bids and offers of innumerable buyers and sellers each too small
to effect the outcome by his own action. The interplay of supply, de-
mand, and price was supposed to ensure that commodities would be
produced in the right proportions, that productive resources would be
correctly allocated and efficiently utilized, and that factors of produc-
tion would be rewarded in accordance with their productivity. In
addition, given competitive pricing, a slump could be no more than a
temporary phenomenon since a general excess of supply must neces-
sarily depress prices to the point where demand would once again
clear the market.

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This idyllic picture does not apply to the new capitalism. The
decisive capitalist enterprise is no longer the small individually owned
firm but the giant corporation in which management is separated from
ownership and which typically controls so large a share of the market
that it can, within fairly wide limits, set its own prices. As we shall see
presently, the theorists of the new capitalism are far from unanimous
about how an economy dominated by big corporations does function,
but at any rate they are fully agreed that it does not and could not
function in the manner of the classical model. Perhaps the clearest
and most concise spelling out of the reasons why the classical model
is not applicable in the new circumstances is to be found in Galbraith
[9], especially Chapter IV. Strachey [16] also gives a good account of
the matter.

The Corporate Economy

There are at least four distinguishable, though in certain respects
overlapping, views about how an economic model dominated by a
relatively few big corporations should be expected to function. I shall
describe them under the following somewhat arbitrary headings: ( 1)
The "New" Competition; (2) Countervailing Power; (3) The Cor-
porate Soul; and (4) Unchecked Oligopoly.
The «New" Competition. According to some writers, notably the
Editors of Fortune [8] and David Lilienthal [12] the corporate economy
generates a new kind of competition which works not only as well as
but actually much better than the old kind. Price competition, to be
sure, is out or at any rate relegated to a relatively minor role. In its
place we have, first, competition in service and quality, and second,
competition in innovation (development of both new products and
new methods of production). The latter is supposed to be the more
important of the two kinds of competition, and indeed is said to be
responsible for lending to the new capitalism an enormously dynamic
and progressive character with an unlimited growth potential. Under
these circumstances, all the old depression-born fears of maturity or
stagnation are quite groundless: the problem of the new corporate
capitalism is not a shortage of investment outlets but lack of enough
investment-seeking funds to realize its full possibilities. These ideas
about the new competition and its wondrous promise for the future,
incidentally, closely parallel and perhaps to a certain extent reflect
theoretical currents in the economics profession. Schumpeter [15]
preached the technological progressiveness of the big corporation long

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before it became a popular theme; while J. M. Clark [5] and E. S.

Mason [14] took the lead in developing a notion of "workable competi-
tion" which they hoped would be as economically efficacious as the
"free," "pure," or "perfect" competition of the past.
Countervailing Power. This theory is the special product of J. K.
Galbraith [9]. It maintains that wherever dangerous power develops on
one side of a market, there will grow up on the other side (either spon-
taneously as in the case of chain stores or mail-order houses, or with
government assistance as in the case of agriculture and labor) a coun-
tervailing power which holds the original power in check. Thus
despite the growth of potentially overweening monopolies (or oligo-
polies), the new capitalism develops a new self-adjusting mechanism
which takes the place of the old competition. In a review of Gal-
braith's American Capitalism, Joan Robinson wittily and aptly char-
acterized this theory as an effort at "re-bunking laisser [aire:"
The Corporate Soul. The idea that the managers of the modern
corporation no longer seek to maximize profits but in effect act as
trustees of the whole community goes back to the well-known work of
Berle and Means published in 1932 [3]. Since then it has been devel-
oped by the same authors, notably Berle [2], and has been taken up by
many others, including professional economists (see especially Kaysen
[11] for a clear, concise statement). In place of the old-fashioned "soul-
less" corporation we now have the modern "soulful" corporation seek-
ing to do its best not only for stockholders but also for workers, custom-
ers, suppliers, and the general public. A system dominated by soulful
corporations is supposed to operate very differently from the old profit-
oriented capitalism. To listen to Berle, indeed, one gets the impression
that modern corporations have instituted a regime of economic plan-
ning, in principle very similar to that in force in the Soviet Union.
Such a system is naturally not threatened by the inequalities and in-
stabilities which used to beset the old capitalism.
Unchecked Oligopoly. Almost alone among the theorists of the
new capitalism (he usually calls it "last stage capitalism"), John
Strachey [16J holds that on purely economic grounds the oligopolistic
system of large corporations tends to develop greater instability and
more extreme inequality than the competitive capitalist order. This is
because Strachey believes, in opposition to Berle et al, that the big cor-
poration is still profit-oriented, and its great market power enables it
to realize much larger profits than its competitive ancestors could hope
to earn. Large profits in turn are the source of both instability and in-

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equality (this follows from a style of reasoning which is common to

both Keynesism and Marxism, which are judiciously mixed in Strach-
ey's economic theory). If the new capitalism nevertheless does not
break down but on the contrary functions with greater justice and ef-
ficiency than the old, the reason, in Strachey's view, must be sought
not in the economics of the system but in its politics. And this brings
us to a subject which it will be preferable to treat under a separate
heading, namely, the role of the state in the new capitalism.

Role of the State in the New Capitalism

All of the theories of a new capitalism assign to the state both a
different role and a larger role than the one it was supposed to per-
form in the classical and Marxian theories of the modus operandi of
capitalist society. Nevertheless, there are differences of interpretation
and emphasis.
John Strachey, as we have seen, finds that recent economic de-
velopments have tended to worsen the performance of capitalism but
believes that these have been more than compensated in the political
sphere. The active force here he sees as "democracy" which operates
in many ways (through trade unions and labor-based political parties,
of course, but also through conservative parties) and makes use of the
most varied means to achieve its goals of full employment, equality,
social welfare, and the like. The struggle between democracy and the
inherent tendencies of corporate capitalism is unremitting and will
finally end only with the suppression of democracy or the transforma-
tion of the system into full-fledged socialism. In the meantime, how-
ever, and as a by-product of this struggle, capitalism works much
better than it used to. This, according to Strachey, is the secret of the
latest-and what he takes to be the last-phase of capitalism.
An equally sophisticated but somewhat different theory has
been put forward by the governing party of Yugoslavia [17]. Accord-
ing to this view, the decisive factor is not so much "democracy" as the
state bureaucracy which is supposed to achieve a considerable degree
of independence in the most advanced capitalist countries. This rela-
tively independent governing stratum is able to carry out reforms and
put into practice policies which modify the workings of the traditional
capitalist system. Looked at in longer perspective, this state of affairs
is seen by the Yugoslav theorists as transitional, already partially trans-
cending capitalism and establishing foundations for socialist growth
in the future.

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American writers on the new capitalism also stress the role of the
state, but without feeling the need of any particular political theory
to explain or justify it. The pragmatic experiments of the New Deal,
the promptings of Keynesian theory, the compulsions of war and cold
war-these are generally taken to have been the stages and factors
which have propelled the state into a new economic role. But what-
ever their ideas about the causative factors at work, these American
writers are in close agreement about two points: first, that the new
role of the state is permanent and can now be treated as an integral
feature of the system; and second, that the ability of the state to pre-
vent a serious depression can be taken for granted-and this regard-
less of what happens in the field of armaments. Beyond this area of
agreement there are, of course, differences about how much credit for
the relatively favorable performance of capitalism in recent years
should go to the state, and also about how much and what kinds of
action the state will be called upon to take in the future. The "man-
agerial" writers like Berle and the editors of Fortune generally play
down the importance of the state, while "New Dealers" like Galbraith
play it up and believe that the role of the state will inevitably continue
to expand in the future. In practice, it may be noted, the position of
the latter group is almost indistinguishable from the seemingly more
radical socialist position of Strachey, a position which incidentally is
shared by most articulate European Social Democrats.

Doubts and Criticisms

All the ideas and theories which have been surveyed have, natur-
ally enough, been subjected to scrutiny and criticism, often from with-
in the camp of believers in a new capitalism and perhaps even more
frequently from more orthodox or skeptical sections of the economics
profession. Here we shall have to be content with a desperately brief
notice of some of the more important doubts and criticisms.
From the economics profession, the most devastating critique has
been that of E. S. Mason [13], Professor of Economics at Harvard and
formerly Dean of the Harvard Graduate School of Public Administra-
tion. Mason does a workmanlike job of showing that the whole range
of "managerial" thought-and in this classification he includes what
we have subsumed under the headings of new competition, counter-
vailing power, and the soulful corporation-is, to put the point blunt-
ly, superficial and hardly to be taken seriously. Of the exponents of
the new competition he says that they "have hardly begun to grapple

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with the real problems implicit in their view of the structure and func-
tioning of industrial markets." And he might have added that if and
when they do grapple with these problems (a most unlikely conting-
ency, by the way) they will find that even the most vigorous forms of
non-price competition can in no way alter the logic of John Strachey's
argument that oligopoly, left to itself, means higher profits, and higher
profits mean more instability and greater inequality. With regard to
countervailing power, Mason says, "The 'countervailers' have never
been able to explain why countervailance does not lead merely to a
sharing of monopoly profits at the expense of the rest of the economy."
One is reminded of the witty remark of an early reviewer of Gal-
braith's book [9J to the effect that possibly some of the alleged counter-
vailing powers may veil more power than they counter.* And of the
alleged beneficence of soulful corporations, Mason has the following
to say:

Assume an economy composed of a few hundred large cor-

porations, each enjoying substantial market power and all di-
rected by managements with a "conscience." Each management
wants to do the best it can for labor, customers, suppliers, and
owners. How do prices get determined in such an economy? How
are factors remunerated, and what relation is there between re-
muneration and performance? What is the mechanism, if any,
that assures effective resource use, and how can corporate man-
agements "do right by" labor, suppliers, customers, and owners
while simultaneously serving the public interests? ... I can find
no reasoned answer in the managerial literature.
The answer, of course, is that if a few hundred sovereign corpora-
tions each took it upon itself to plan in the public interest, the result
would be not a new capitalism but simple chaos. Fortunately for capi-
talism, however, this at any rate is not one of its more pressing prob-
lems. Professor James Earley [7J, of the University of Wisconsin, has
shown on the basis of empirical studies such as none of the manager-
ialists has ever bothered to carry out that the modern giant corporation
is more, not less, profit-oriented than its small-scale predecessor.
Mason's riddling-and in part ridiculing-of managerial theories
is the more impressive in that it was never any part of his purpose to
cast disparagement on capitalism, old or new. On the contrary, his
interest in these theories stemmed from a belief that a new rationali-
zation and justification of capitalism (he calls it an "apologetic") is

* C. L. Christenson in the Journal of Political Economy, June 1952.

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needed to take the place of the now outdated classical theory based on
the assumption of free competition. Mason's examination of the vari-
ous versions of managerialism-and in his usage this takes in most
of what we have included under the heading of theories of the new
capitalism-shows, however, that nothing is to be expected from this
quarter. "The attack on the capitalist apologetic of the nineteenth
century has been successful," he concludes, "but a satisfactory con-
temporary apologetic is still to be created." And he adds that he sus-
pects that "the psychologists, the sociologists, and, possibly, the poli-
tical scientists" will have more to contribute to it than will the econo-
mists. The article ends on a worried note: "It is high time they were
called to their job."
Mason is certainly right about the impotence of economics before
this task. The entire logic of economic theory points to the conclusion
reached by John Strachey: the immanent tendency of an oligopolistic
economy of giant corporations is toward ever more inequality and ever
greater instability. This does not negate the argument in favor of such
an economy (as opposed to small-scale competitive capitalism) on the
grounds of superior technological progressiveness. Manifestly, in an
age of science and organized research the big corporation is much
better equipped to innovate than the individual entrepreneur.* There
is, however, no reason to equate rapid technological advance with un-
limited investment opportunity. A high rate of technological progress
can be financed from depreciation allowances-that is to say, with no
net investment at all-s-and to the extent that new technologies are both
labor-saving and capital-saving they may just as well exacerbate as
ameliorate the problem of providing investment outlets for the swell-
ing tide of profits which the big corporations tend to generate. What-
ever satisfaction one may derive from the technological performance
of the big corporations, clearly there is no ground for supposing that
an economy dominated by them, if left to itself, would function any
more satisfactorily than the old-fashioned capitalism it replaced.
This brings us back again to the role of the state. What are we to
say about Strachey's theory that "democracy" makes all the difference
to the functioning of capitalism? If one were to confine one's attention
to postwar Britain and a few of the smaller Western European coun-
tries, one could perhaps make out a case for this theory, but as a

* But see Professor Morrison's article below for an estimate of the extent
to which innovation in the American economy today owes its existence to war
preparations.

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generalization there is little to be said in its favor. The first large-scale

experiment in the Welfare State was carried out by Imperial Germany
under Bismarck, hardly a model of democracy. And the first success-
ful, albeit unconscious, application of Keynesian economics was the
work of Hitler. At the very same time, the United States under the
New Deal was in what may have been the most democratic phase of
the country's entire history-and continued to suffer from mass un-
employment on an unprecedented scale. In the face of facts such as
these, it is hard to take seriously a theory which attributes a decisive
change in the functioning of capitalism to democratically motivated
(or generated) state intervention.
The Yugoslav theory of the independent state bureaucracy is, if
anything, even less convincing. So far as the United States is con-
cerned, for example, there has probably never been a time when the
whole state apparatus has been more securely in the control of Big
Business than during the 1950s.
Not that all those writers are wrong who stress the increased
economic role of the state under capitalism. That such an increase
has indeed taken place, and that it has had its effect on the function-
ing of the system-these are matters of common observation which no
one could deny. But this appears to be a long-term trend which has
operated under democratic and dictatorial governments alike and
which has little or nothing to do with the character of the state bu-
reaucracy. How it is related to capitalism and in just what sense it may
be said to have produced a new capitalism are questions which none
of the theories we have been surveying seriously tackles, let alone suc-
cessfully answers. The truth is that these theories, purged of their
errors and illogicalities, boil down to a few simple propositions about
the increased economic importance of the state and the absence of
sharp or prolonged depressions in the period since World War II.
In this form the theories are quite unexceptionable-v-and equally un-
enlightening.

Concluding Remarks
Let me conclude with a few suggestions as to what it seems to me
ought to be the Marxist view of the issues raised in this article.
First, whether one calls present-day capitalism "new" or "last
stage" or what have you is not a matter of great importance. But it is
important to recognize-and not to lose sight of-the fact that in some
respects the system has worked better in recent years than it used to.

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This is particularly true with respect to the severity (though not the
frequency) of depressions.
Second, the "new capitalism" theories are right to stress that the
old-fashioned competitive, self-adjusting model is no longer applic-
able. They are also right to insist on the dominant role of giant mono-
polistic (or oligopolistic) corporations.
Third, John Strachey is right to argue that the immanent tend-
ency of a capitalist economy dominated by giant corporations is
toward more, not less, inequality and instability. In the absence of
counteracting forces, such an economy tends to bog down in chronic
and self-destructive depression-as indeed the American economy did
in the years after 1929.
Fourth, the system itself-and not "democracy" or an independ-
ent state bureaucracy-generates counteracting forces. They can all
be subsumed under the general heading of waste. Some of the waste
is private-salesmanship, fins, planned obsolescence, and so on and
so forth. Private waste, however, is insufficient and the government is
called upon to help. Because of democracy and such independence as
the state bureaucracy may possess, there is a tendency for the state to
embark on welfare and other types of useful projects, but the vested
interests imbedded in the system set up the most powerful kind of
blockages, and (so far at any rate) the only type of government ac-
tivity that has been sustained on an adequate scale is the purely waste-
ful one of war preparations. It should never be [orgotten that quanti-
tatively the only really new feature of post-World War II capitalism is
the vastly increased size of the arms budget. All other government
spending is about the same percentage of the Gross National Product
as in 1929. Further, there is no reason except wishful thinking for
believing, if the arms budget were reduced to the proportions of the
1930s, that the economy would not once again revert to the condition
of the 1930s.
Finally, it should be no part of the Marxist view that all this is
inevitable and must remain unchanged until the day of the socialist
revolution. Perhaps, in a world going socialist, a determined demo-
cratic movement in the advanced capitalist countries-or at least in
some of them-can make the welfare state a real substitute for the
warfare state. But it hasn't happened yet.

SELECTED WORKS RELEVANT TO THE "NEW CAPITALISM"

1. Baran, Paul A., "Reflections on Underconsumption" in Moses Abramovitz
and others, The Allocation of Economic Resources: Essays in Honor of

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 THEORIES OF THE NEW CAPITALISM

Bernard Francis Haley (1959)

2. Berle, A. A., Jr., The 20th Century Capitalist Revolution (1954)
3. Berle, A. A., Jr., and Means, Gardner C., The Modern Corporation and
Private Property (1932)
4. Burnham, James, The Managerial Revolution (1941)
5. Clark, J. M., "Toward a Concept of Workable Competition," American
Economic Review, June 1940
6. Crosland, C. A. R., The Future of Socialism (1957)
7. Earley, James, in American Economic Association, Papers and Proceed-
ings 1956, May 1957
8. Editors of Fortune, U.S.A.: The Permanent Revolution (1951)
9. Galbraith, J. K., American Capitalism (1952)
10. Galbraith,]. K., The Affluent Society (1958)
11. Kaysen, Carl, "The Social Significance of the Modern Corporation," in
American Economic Association, Papers and Proceedings 1956, May 1957
12. Lilienthal, David, Big Business: A New Era (1952)
13. Mason, E. S., "The Apologetics of 'Managerialism,''' The Journal of
Business, January 1958
14. Mason, E. S., in Dexter M. Keezer, ed., "The Antitrust Laws: A Sym-
posium," American Economic Review, June 1949
15. Schumpeter, J. A., Capitalism, Socialism, and Democracy (1942)
16. Strachey, John, Contemporary Capitalism (1956)
17. Yugoslavia's Way: Program of the League of Communists of Yugoslavia
(1958 )

Since the seventies . . . the course of affairs in business has apparently

taken a permanent change .... During this recent period, and with increasing
persistency, chronic depression has been the rule rather than the exception in
business. Seasons of easy times, "ordinary prosperity," during this period are
pretty uniformly traceable to specific causes extraneous to the process of in-
dustrial business proper .... If the outside stimulus from which the present
prosperity takes its impulse be continued at an adequate pitch, the season of
prosperity may be prolonged; otherwise there seems little reason to expect
any other outcome than a more or less abrupt and searching liquidation ....
That is to say in other words, the absorption of goods and services by extra-
industrial expenditures, expenditures which as seen from the standpoint of in-
dustry are pure waste, would have to go on in an increasing volume. If the
wasteful expenditure slackens, the logical outcome should be a considerable
perturbation of business and industry, followed by depression.
Thorstein Veblen, The Theory of Business Enterprise, 1904

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